CREDIT TRANSACTIONS.pdf

8/10/2019 CREDIT TRANSACTIONS.pdf

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a) R e f e r r e d t o a s l o a n f o rconsumption

b) Borrower bears risks of loss

c) To be paid only at the end ofperiod

d) Not personal in character

a) Referred to as loan for use ortemporary possession

b) Resperit domino. Lender bearsthe risk of loss

c) To return object at end ofperiod or return upon demand

in proper cases even beforethe end of the periodd) Personal in character

Article 1934 An accepted promise to deliver something by way of

commodatum or simple loan is binding upon the parties, but thecommodatum or simple loan itself shall not be perfected until thedelivery of the object of the contract.

COMMENT:

1. Nature of the contract of loan

Commodatum and loan are real contract. They are perfected by the delivery ofthe object loaned. On the other hand, consensual contracts are perfected by mereconsent.

2. Need for delivery

To affect either a commodatum or a mutuum, a delivery either real orconstructive, is essential. This is so because unless there is delivery, the borrower incommodatum cannot exercise due diligence over the thing loaned.

- In relation to: Art. 1740a of the Civil CodeIf the common carrier negligently incurs in delay in transporting the goods, a

natural disaster shall not free such carrier from responsibility.

2. COMMODATUM

a)a. Nature and Effects: Art. 1935 - 1940 Civil code

Article 1935 The bailee in commodatum acquires the use of the thing loanedbut not its fruits; if any compensation is to be paid by him who acquiresthe use, the contract ceases to be a commodatum.

COMMENT:

S ecured T ransaction L aw


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1. Commodatum Defined

Commodatum is a real, principal, essentially gratuitous and personal contract where the bailor or lender delivers to the bailee or borrower a non-consumable object, sothat the latter may use the same for a certain period and later return it.

2. Characteristics of Commodatum as a Contract

a. real (because perfected by delivery) b. principal ( because it can stand alone by itself)c. gratuitous (otherwise, the contract is one of lease)d. personal in nature (because of the trust) (See Art. 1939)

Article 1936 Consumable goods may be the subject of commodatum if thepurpose of the contract is not the consumption of the object, as when itis merely for exhibition.

COMMENT: Subject Matter of Commodatum

Usually, only non-consumable goods may be the object of a commodatum for the thingitself should not be consumed and must be returned, but consumable thing may also the objectof commodatum if the same is only for exhibition or used ad ostentationem.

Article 1937 Movable or immovable property may be the object ofcommodatum.

COMMENT:

Properties that may be the object of Commodatum

a. immovable property b. movable property

Article 1938 The bailor in commodatum need not be the owner of the thingloaned.

COMMENT:

Reason for the law

Bailor need not be the owner because the law said: the contract of commodatum does nottransfer ownership. All that is required is that the bailor has the right to the use of the property

which he is lending, and that he be allowed to alienate this right to use.



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Article 1939 Commodatum is purely personal in character. Consequently:

1) The death of either the bailor or the bailee extinguishes thecontract;

2) The bailee can neither lend nor lease the object of the contractto a third person. However, the members of the bailees

household may make use of the thing loaned, unless there is astipulation to the contrary, or unless the nature of the thingforbids such use.

- This article is self-explanatory

Article 1940 A stipulation that the bailee may make use of the fruits of thething loaned is valid.

COMMENT:

Does the Bailee have right to use the fruits?

As a rule bailee is not entitled to the fruits, otherwise the contract may be one ofusufruct. However, to stipulate that the bailee makes use of the fruits would not destroy theessence of a commodatum, for liberality is still the actual cause or consideration of the contract.

C ASES on nature and effects of Commodatum

Republic v. Jose V. Bagtas6 SCRA 262

Bailor: Jose BagtasBailee: Republic of the Philippines through the Bureau of Animal Industry

Facts: Jose Bagtas borrowed three bulls from the Bureau of Animal Industry, for breedingpurposes but subject to a charge of breeding fee of 10% of the book value of the bulls. Thecontract is from May 8, 1948 to May 7, 1949.

Upon the expiration of the contract Jose asked for a renewal for another period of one

year, the Bureau then approves such renewal but limited only to one bull and asked for thereturn of the other two. Before the contract lapse Jose Bagtas make known of his desire to buythe three bulls, subject to the approval of the Auditor General. But Bagtas later on failed to buythree bulls and pay the book value of said bulls, and kept in his possession the bull even after thecontract lapsed.

Contention of the parties:

Republic:- Bagtas should pay the book value or return the bulls

Bagtas:



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- Felicidad Bagtas being the administrative of the late Jose Bagtas contends that thecontract made between his husband and the Republic is a contract ofcommodatum, and for that reason they are not liable for the death of the one bulldue to force majeure as against the claim of the Republic.

Issue:Is the contract one of commodatum?

Ruling:

The court on its decision explained that the contract may not be that of commodatum, but a contract of lease in consideration of the compensation gained or being gained.Furthermore, even if the contract be that of a commodatum they are still liable for they acted in

bad faith by with holding the bulls longer than stipulated without valid reason.

Republic v. CA November 26, 1986

Bailor: Domingo P. Baloy Bailee: U.S. Navy Third party claimant: Republic of the Philippines Facts:

The land in issue has been occupied by the U.S Navy by virtue of Act 627 for 57 years,and was later been abandoned. The said land is owned by Domingo P. Baloy and his heirsprivately, since 1894 as attested by an Informacion Possesoria Title issued by the SpanishGovernment. The heirs of Domingo wishes to register the land in question in their names butthey were opposed by the Republic.


Republic:- The land had become public and could not be subject to a valid registration for

private ownership.- the failure of the heirs of Domingo to comply with the 6 months period to file aclaim to the subject private land barred them of any claims in the future and saidland be ipso facto become public land as implied under Act 627 of the PhilippineCommission, pursuant to the executive order of the President of the U.S..

Issue:Is the occupancy by the US Navy in the concept of an owner, ripen into ownership in

commodatum?

Ruling: No. ownership is not transferred to the US Navy. The occupancy of the U.S. Navy wasnot in the concept of owner but partakes of the character of a commodatum, therefore it cannot

militate against the title of Domingo Baloy and his successors-in-interest for ownership is nottransferred.

Mina v. PascualOctober 14, 1913

Bailor: Alejandra Mina through Francisco FontanillaBailee: Repurta Pascual through Andres FontanillaThird party complainant or the buyer: Cu Joco

Facts:



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Francisco Fontanilla (the ascendant of Alejandra Mina) is the then owner of a lot atLaoag Ilocos Norte, which with consent allowed his brother Andres Fontanilla( ascendant ofRepurta Pascual) to build and erect a warehouse over said lot.

After which Repurta Pascual sold the warehouse with the lot to a certain Cu Joco. Hence, Alejandra Mina filed a case to annul said sale of the lot and warehouse. Contending that saidsale is void for it is not Ruperta Pascual who is the owner of the lot and the whole of the

warehouse. Thus they have no right to sell the same.

Contention of the parties: Cu Joco:

- Contends the legality of the sale of the land warehouse for it was done throughauction by which gives him a right over said properties.

Issue:Is there a contract of commodatum?

Ruling:

The contract or agreement made between Francisco and Andres is that of a contract ofcommodatum; (despite the lack of definite time of us by Andres of the lot, due to personalmotive of Francisco with respect to a certain Fructuoso Fontanilla)

By said contract under art. 1740, Civil Code a sale of land belonging to another, on whicha building of the vendors is located, is null and void, for the vendor cannot sell or transferproperty that does not belong to him.

Saura Import and Export Company Inc. v. DBP April 27, 1972

Bailor: Rehabilitation Finance Corp. or Development Bank of the Philippines DBP.Bailee: Saura Import and Export Company Incoporated.

Facts:Saura Import and export Co., applied for loan to Rehabilitation Finance Corporation

(RFC) which later on converted to DBP. The said bank due to disagreement as to the laidconditions imposed against herein Saura the said loan was then denied. Saura then filed a casecontending that the denial of the loan made by the bank is against or violates their right underthe civil code on obligation and contracts because said bank made such denial in mutualmanner. There was a breach of contract.

The DBP on the other hand contends that there was no breach of contract violated; Saurascause of action prescribes, and that there was a contract but it was Saura who did not comply

with the terms thereof.

Issue: Was there a perfected contract of loan?

Ruling:

Yes. There was indeed a perfected consensual contract, as recognized in Art. 1934 of theCivil Code which provides: An accepted promise to deliver something by way of commodatum orsimple loan is binding upon the parties, but the commodatum or simple loan itself shall not beperfected until the delivery of the object of the contract. Manresa. - mutuo disenso principle

was then applied in the extinguishment of the contract; that since mutual agreement can createa contract, mutual disagreement by the parties can cause its extinguishment.



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b) The bailee; 1941-1945 Civil Code:

Article 1941 The bailee is obliged to pay for the ordinary expenses for theuse and preservation of the thing loaned.

COMMENT:

Duty of the borrower to pay ordinary expenses

Reason for the law: the bailee is supposed to return the identical thing, so he is obligedto take care of the thing with the diligence of a good father of a family. It follows necessarily thatordinary expenses for the use and preservation of the thing loaned must be borne by the bailee.

Article 1942 The bailee is liable for the loss of the thing, even if it should bethrough a fortuitous event:

1) If he devotes the thing to any purpose different from thatfor which it has been loaned;

2) If he keeps it longer than the period stipulated, or afterthe accomplishment of the use for which thecommodatum has been constituted;

3) If the thing loaned has been delivered with appraisal of itsvalue, unless there is a stipulation exempting the baileefrom responsibility in case of a fortuitous event;

4) If he lends or leases the thing to a third person, who is not

a member of his household;5) If, being able to save either the thing borrowed or his ownthing, he chose to have the latter.

COMMENT:

Liability for loss due to a fortuitous event

As a rule, debtor of a thing is not responsible for its loss thru a fortuitous event. This Article gives the exceptions in a case of commodatum.

Article 1943 The bailee does not answer for the deterioration of the thingloaned due only to the use thereof and without his fault.

COMMENT:

This article provides for non-liability for deterioration without fault.



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Article 1944 The bailee cannot retain the thing loaned on the ground that thebailor owes him something, even though it may be by reason ofexpenses. However, the bailee has a right of retention for damagesmentioned in article 1951.

COMMENT:

Reason for the law

Bailment implies a trust that as son as the time has expired, or the purposeaccomplished, the bailed property must be restored t the bailor.

Article 1945 When there are two or more bailees to whom a thing is loaned inthe same contract, they are liable solidarily.

COMMENT:

This article provides for solidary liability of Bailees

Margarita Quintos et al. v. Beck November 3, 1939

Bailor: Margarita QuintosBailee: Beck

Facts:Beck was a tenant of Quintos at her house on M.H. Del Pilar Steet No. 1175. Upon the

novation of the contract of lease between the parties, the leassor gratuitously granted to Beck theuse of the furniture (three gas heaters and four electric lamps) subject to the condition that Beck

would return the same upon demand.

Later on, upon demand of the furniture by Quintos, Beck instead of delivering the sameto the formers house he surrendered them to the sheriff.


Quintos:- That since the contract of commodatum with condition as agreed upon was then

violated as to the condition implied by Beck, therefore he must borne all expensesand Quintos be excluded therefrom.

Beck:- Insisted that she should only return the furnitures upon the expiration of the lease.

Issue:Is the bailor liable for the judicial or legal expenses due to act of the bailee affecting the

thing loaned?

Ruling:



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Franklin upon knowing that Sterela ( the company) was no longer holding office in theaddress previously given to him, he and his wife went to the Bank wherein, to verify if theirmoney was still intact, and they have learned that what was left is only 90,000.00 pesos, forDoronilla had withdrawn the amount missing.

By legal means Franklin demanded the return of his money (200,000.00pesos).The trial court and CA rendered decision in favor of Franklin. Hence this petition.The Bank alleged that CA erred in its decision saying:

Contention of the parties: Petitioners:

- Claim that the transaction is a mutuum thus petitioner cannot be held liable for thereturn of the 200,000.00.

Issues:1) Was there a contract of loan between the parties; and2) Is the bank liable for any damages?

Ruling:

That the contract is that of commodatum for the subject may be consumable but theultimate intention of the loan is not to consume the same.

Under art. 2180 of the Civil Code employers shall be held liable primarily and solidarilyliable for damages caused by their employees acting within the scope of their assigned tasks. Thesaid manager failed to exercise due diligence to prevent the unauthorized withdrawal.

c) The bailor: articles 1946-1952 Civil Code; in re art. 765 Civil Code.

Article 1946 The bailor cannot demand the return of the thing loaned till afterthe expiration of the period stipulated, or after the accomplishment ofthe use for which the commodatum has been constituted. However, ifin the meantime, he should have urgent need of the thing, he maydemand its return or temporary use.

In case of temporary use by the bailor, the contract ofcommodatum is suspended while the thing is in the possession of thebailor.




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Article 1947

The bailor may demand the thing at will, and the contractualrelation is called a precarium, in the following cases:

1)If neither the duration of the contract nor the use to which thething loaned should be devoted, has been stipulated; or

2) If the use of the thing is merely tolerated by the owner.

COMMENT:

Precarium

- is a special form of commodatum. In a true commodatum, the possession of the borrower is more secure. The possession of the borrower in precarium isprecarious, that is , dependent on the lenders will.

Article 1948 The bailor may demand immediate return of the thing if thebailee commits any acts of ingratitude specified in Article 765.

COMMENT:

Grounds for Ingratitude

Art. 765 of the Civil Code provides:

The donation may also be revoked at the instance of the donor, by reason ofingratitude in the following cases:

1) If the donee should commit some offense against the person, the honor or theproperty of the donor, or of his wife or children under his parental authority;

2) If the donee imputes to the donor any criminal offense, or any act involvingmoral turpitude, even though he should prove it, unless the crime or the act has

been committed against the donee himself, his wife or children under hisauthority;

3) If he unduly reduses him support when the donee is legally or morally bound togive support to the donor.



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Article 1949 The bailor shall refund the extraordinary expenses during thecontract for the preservation of the thing loaned, provided the baileebrings the same to the knowledge of the bailor before incurring them,except when they are so urgent that the reply to the notificationcannot be awaited without danger.

If the extraordinary expenses arise on the occasion of the actualuse of the thing by the bailee, even though he acted without fault, theyshall be borne equally by both the bailor and the bailee, unless there isa stipulation to the contrary.

COMMENT:

Extraordinary Expenses

a. As a rule, the extraordinary expenses should be paid by the bailor because it is he whoprofits by said expenses, otherwise the thing borrowed would be destroyed.

b. Generally notice is required because the bailor should be given discretion as to what he wants to do his own property.

Article 1950 If, for the purpose of making use of the thing, the bailee incursexpenses other than those referred to in Article 1941 and 1949, he isnot entitled to reimbursement.

- This article is self-explanatory.

Article 1951The bailor who, knowing the flaws of the thing loaned does not advisethe bailee of the same, shall be liable to the latter for the damageswhich he may suffer by reason thereof.

COMMENT:

Reason for the law

When a person lends, he ought to confer a benefit, and not to do a mischief. If he doesnot reveal the flaws, he is liable for his bad faith. The flaws referred to must be hidden defects,not obvious ones.



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Article 1952 The bailor cannot exempt himself from the payment of expensesor damages by abandoning the thing to the bailee.

COMMENT:

Reason for the law

The value of the thing borrowed might be less than the value of the expenses or damages.

Manzano v. Perez Sr. August 9, 2001

Bailor: Emilia ManzanoBailee: Nieves M. Perez

Facts:

Emilia Manzano lent her house and lot to her sister Nieves M. Perez for the latter o use it

as a collateral for a projected loan, upon the promise that she would return the propertyimmediately upon payment of her loan.

Pursuant to the previous agreement both parties end up executing deeds of conveyancefor the sale of subject house and lot, in favor of Nieves in consideration of 1.00 peso plus other

valuables, which was allegedly received by Emilia.


Petitioner:- claims the subject property contending that there was no contact of sale made, that

the contract made by them is that of a commodatum, and that said property bedelivered back to her. All of which are made in oral.

Respondents:- showed or presented evidence to prove and deny all belied allegation or contention

of the petitioner. Like notarial document; two Kasulatan ng Bilihang Tulayan.

Issue: Whether or not the contract be that of a sale or loan.

Ruling:

The court reiterates the evidence offered by petitioner to prove the claim is sadly lacking.Jurisprudence on the subject matter, points to the existence of a sale, not a commodatum, overthe subject house and lot.

Note: oral testimony as to a certain fact depending as it does exclusively on humanmemory is not as reliable as written or documentary evidence.

The fact that the deed of sale was not notarized does not render the agreement null and void and without any effect. The necessity of public document is only for convenience not for validity or enforceability.



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1. Simple Loan or Mutuum- Arts. 1953-1960 Civil Code, in relation to Art. 1933

Article 1953 A person who receives a loan of money or any other fungiblething acquires the ownership thereof, and is bound to pay to thecreditor an equal amount of the same kind and quality.

COMMENT:

Ownership Passes in Mutuum

Ownership passes to the barrower, but of course he must pay later.

Article 1954 A contract whereby one person transfers the ownership of non-fungible things to another with the obligation on the part of the latterto give things of the same kind, quantity, and quality shall beconsidered barter.

COMMENT:

Barter of Non-Consumable things

Here, the word non-fungible does not really mean non-fungible but non-consumable.Reason: if the thing were really non-fungible the identical thing must be returned. Here, anequivalent thing is returned.

Article 1955 The obligation of a person who borrows money shall be governed

by the provisions of Articles 1249 and 1250 of this Code.

If what was loaned is a fungible thing other than money, the

debtor owes another thing of the same kind, quantity and quality,even if it should change in value. In case it is impossible to deliver thesame kind, its value at the time of the perfection of the loan shall bepaid.

COMMENT:

Liabilty of Borrower of Money

Liability is governed by Arts. 1249 and 1250.



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- Article 1249: T he payment of debt in money shall be made in the currencystipulated, and if it is not possible to deliver such currency, then in the currency

which is legal tender in the Philippines.The delivery of promissory notes payable to order, or bills of exchange or

other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be heldin abeyance

- Article 1250: In case an extraordinary inflation or deflation of the currencystipulated should supervene, the value of the currency at the time of theestablishment of the obligation shall be th basis of payment, unless there is anagreement to the contrary.

Article 1956 No interest shall be due unless it has been expressly stipulatedin writing.

COMMENT:

1. Formality for Interest (for the use of money)

The interest must be stipulated in WTITING

2. How interest arises

The right to interest arises only by virtue of a contract or by virtue of damages fordelay or failure to pay principal on which interest is demanded.

3. When interest earns interest

Interest due shall earn legal interest from the time it is judicially demanded; theobligation may be silent upon this point. (Article 2212 civil code)

4. Interest by Way of Damages

Article 2209: if the obligation consist in the payment of sum of money, and thedebtor incurs in delay, the indemnity for damages, there being no stipulation to thecontrary, shall be the payment of the interest agreed upon, and in the absence ofstipulation, the legal interest, which is six percent per annum. (The rate now is 12% perannum)

Article 1957 Contracts and stipulations, under any cloak or device whatever,intended to circumvent the laws against usury shall be void. Theborrower may recover in accordance with the laws on usury.

- This article is self-explanatory.



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Article 1958 In the determination of the interest, if it is payable in kind, itsvalue shall be appraised at the current price of the products or goods atthe time and place of payment.

COMMENT:

Determination of Interest in kind

Value should be at the time and place of PAYMENT.

Article 1959 Without prejudice to the provisions of Article 2212, interest dueand unpaid shall not earn interest. However, the contracting partiesmay by stipulation capitalize the interest due and unpaid, which asadded principal shall earn new interest.

COMMENT:

1. When accrued interest earns interest

The general rule is that accrued interest (interest due and unpaid) will not bearinterest, BUT

a. If there is agreement to this effect (art. 1959), or b. If there is judicial demand (Art. 2212)

Then such accrued interest will bear interest at the legal rate (Art. 2212) unless, adifferen rate is stipulated.

2. Compound interest

Compound interest is interest on accrued interest. It is valid to charge compoundinterest, but there must be a written agreement to this effect; otherwise said compoundinterest should not be charged unless it is interest charged upon judicial demand.

Article 1960 If the borrower pays interest when there has been no stipulationtherefore, the provisions of this Code concerning solutio indebiti, or

natural obligation, shall be applied, as the case may be.


Article 1961 Usurious contracts shall be governed by the Usury Law and otherspecial laws, so far as they are not inconsistent with this Code.



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a. Definition

a. Art. 418. - movable property is either consumable or non-consumable. To the first class belong those movables which cannot be used in manner appropriate to their nature without their being consumed; to the second class belong all the others.

b. Obligation to pay/nature of mutuum- As to loan: money or other fungible thing: bailee is bound to pay the equal amount of

the same kind and quality.- Contract: non-fungible things: to give things of the same kind, quantity, and quality-

barter- ownership: is transferred to the bailee but he is obliged to pay to the bailor/creditor

an equal amount of the same kind and quality.

c. Payment - legal mode of extinguishing an obligation by way of delivery of money, givingof a thing, or doing of an act, or not doing of an act.

d. Trust receipts - Written document signed by the entrustee and delivered to the entrustorfor the former to comply with the obligations stated on the receipts, in the payment ofinterest. Failure of which may result to criminal or civil action against the entrustee.

Colinares et al. v. CA, and People of the PhilippinesSeptember 5, 2000

Entrustor: Philippine Banking CorpoartionEntrustee: Colinares and Veloso Facts:

Colinares and Veloso were contracted by the Carmelite Sisters of Cagayan de Oro City torenovate the latters convent for 40,000 pesos.

In order to pursue with the construction project due to lack of budget, Colinares appliedfor a commercial letter of credit with the Phil. Banking Corp. (PBC) to cover the full invoice

value of the goods. They signed a pro-formal trust receipt as security.

A case in violation of P.D. 115 (trust receipt law) in relation to Art. 315 of the RPC(estafa), was filed against Colinares for their failure to comply with the demand made by theBank against them.

Issue:

Whether or not there was a breach of contract against the trustees. Ruling:

SC court said that. - Colinares are contractors and are not importers acquiring the goodsfor re-sale, but obtained the goods for their construction project.

The practice of banks of making borrowers sign trust receipts to facilitate collection ofloans and place them under the threats of criminal prosecution should they be unable to pay tmay be unjust and inequitable, if not reprehensible. Such agreement is contract of adhesion

which borrowers have no option but to sign lest their loan be disapproved.



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e. Interest/ forbearance / usury

i. Interest.- The compensation which is paid by the borrower of money to the lender

for its use, and generally by a debtor to his creditor, in recompense forhis detention of the debt.

ii. Usury - is contracting for or receiving interest in excess of the amount allowed by

law for the loan or use of money, goods, chattels or credits.

iii. Interest payable in kind- Art. 1958 if payable in kind, its value shall be appraised at the current

price of the products or goods at the time and place of payment.

iv. Unpaid Interest. - Arts. 1959, 2212, 195 .

Art.2212: interest due shall earn legal interest from the time it is judiciallydemanded although the obligation may be silent upon this point.

Arts 1956 and 1959: interest due and unpaid shall not earn interest.Except by way of stipulation.

v. Exception to the requirement of stipulation.

Republic v. Jose GrijaldoL-202420, Dec.31, 1965

Facts: In 1943, Jose Grijaldo borrowed money from a bank, evidenced by five promissory notes,and secured by a chattel mortgage on the standing crops on his land. During the war, the crops

were destroyed as a result of enemy action.


Republic:- he is able to pay the principal amount plus interest

Grijaldo:- he is not liable to pay principal amount and interest because his obligation is

extinguished due to destruction of the standing crop.

Issue:Must the borrower still pay?

Held: Yes, for his obligation was to pay a generic thing-money representing the loan with

interest. The chattel mortgage on the crops simply stood as security for the fulfillment of hisobligation, and therefore, the loss of the crops did not extinguish his obligation to pay, becausethe account can still be paid from sources other than said mortgaged crops.



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Overseas Bank of Manila v. CorderoMarch 30, 1982

Depositor: Vicente CorderoDepositary: Overseas Bank of Manila

Facts:

Vicente Cordero opened a one-year time deposit with petitioner bank in the amount of80,000.00 pesos with interest at the rate of 6% per annum. Due to its distressed financialcondition petitioner was unable to pay Cordero his said time deposit together with the interest. RTC and CA ruled in favor of Cordero.


Cordero:- the bank did not cease in its operation- payment of interest and attorneys fees

Issue:Is Cordero entitled for the interest due to him by the Overseas Bank?

Ruling:No, Cordero is not entitled for the payment of interest. The Overseas Bank was totally

crippled during the period of financial distressed. It must be understood that the obligation topay interest on deposit ceases the moment the bank is completely suspended by the dulyconstituted authorities.

De Vera v. CA,

October 18, 2001 Buyer: Gregorio De VeraSeller: Q.P. San Diego Construction Incorporated

Facts:Gregorio De Vera entered into a Condominium Reservation Agreement with Q.P. San

Diego Construction Inc. (QPSDCI). It is worth 325, 000.00 pesos, De Vera gave a down paymentin cash and the balance of him is through Pag-ibig and Open- Housing Loan, which was later onapproved and accepted by QPSDCI.

De Vera assumed that by way of the loan and personal payment of its obligation made byhim that the subject condominium unit is already owned by him, and be entitled to its name.

QPSDCIs failure to remit De Veras payment caused the mortgage of the unit beforeclosed by the funders (consist of the Syndicate Loan Agreement by different banks andcompanies involve in selling the subject condominium property).

De Vera filed a civil case against the Funders, praying that the mortgage between them be declared null and void; and that the condominium he had paid be titled on his name.




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QPSDI:- petitioner should deal directly to Asia Trust, because they sold the property to him

and issued a DOAs thru bank.

Issue:Is the petitioner liable to pay interest?

Ruling:

The essence of financing loan is to obtain funds through an interim loan, while the main

loan is not yet available. This does not mean that the petitioner is liable to private respondentfor penalties, interest and other charges that accrued by reason of non-payment of the balance ofthe purchase price.

Naguiat v. CA and QueanoOctober 3, 2003

Bailor: NaguiatBailee: Queano

Facts: Queano applied a loan with Naguiat , which the latter granted. Naguiat for a loan in theamount of 200,000 pesos which Naguiat granted. To secure the loan Queano executed a Deed ofReal Estate Mortgage in favor of Naguiat, and surrendered her owners duplicate of titlecovering the mortgage properties. A promissory note for the amount of 200,000 pesos withinterest of 12% was also issued.

When Naguiat demanded the settlement of the loans, Queano claims that she did notreceive the proceeds of the loan adding that checks was retained by Ruebenfeldt, Naguiatsagent. Naguiat then sseks to foreclose of the mortgage. Contention of the parties:

Queano:- Queano told that Naguiat, upon the latters demand the settlement of the loan,

Queano claims that she did not receive the proceeds of the loan adding that thechecks was retained by Ruebenfeldt who was Naguiats agent.

Issue:Is Queano liable to pay the principal amount with 12% interest?

Held:No, as stated by Supreme Court, a loan contract is a real contract not consensual, and

such is perfected only upon the delivery of the object of the contract. In this case the object ofthe contract are the loan proceeds which has all told, that the lender did not remit and the

borrower did not receive. That being the case, Queano is not oblige to pay the principal amount with 12% interest.Moreover, the mortgaged which is supposed to secure the loan is null and void.

Severino Tolentino et al. v. Benito Gonzales et al. August 12, 1927

Buyer: Tolentino and ManioSeller: Luzon Rice Mills Incorporated



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Facts:Tolentino and Manio purchased a parcel of land before Luzon Rice Mills Inc., in Tarlac

to be paid by way of installment and non-payment would revolt the property to the originalowner. A transfer certificate was then given to Tolentino and Manio, despite the remaining

balance of 15,000.00 pesos.

The representative of the vendor then wrote the vendees to comply with its obligation orelse a case be filed against them, that said obligation is due and demandable. The vendee failedto comply, hence, this cause of action and claim for the recovery of the property in question.


Tolentino:- Borrower, it should be 6% because the contract was rent.

Sy Chian:- 12% because there was a contract of loan.

Issue:Is the contract usurious on the ground that higher interest rate was imposed?

Ruling:The Usury Law applies only to contract of loan and not to an absolute sale with right to

repurchase. It is well-settled rule that the legal interest of the contract of sale is 6% per annum ifthere was stipulation and 12% per annum for contract of loan.

f. Usurious Transaction Cases

Aguilar vs. Rubiato40 Phil 570

Debtor: RubiatoCreditor: Aguilar Facts: Juan Rubiato was the owner of various parcel of land at Nagcarlan, Province ofLaguna. That Manuel Vila by way of force and fraud made Rubiato to sign a power of attorney inhis favor in order to obtain a loan. That by that reason Vila and company were able to sell theproperty to Hilaria Aguilar, using said document. In the contract of sale the vendor was allowedto stay at the subject property but to pay rent, until demand be ordered by the purchaser.

Hilaria then never received any rent to Vila or Rubiato, hence this cause of action.

Contention of the Plaintiff:- That he is entitled to 60% interest per annum when the pacto de retro was

formulated until the usury law took effect and 12% PA after such date.

Contention of the Respondent- The interest is usurious.

Ruling: Rubiato was only responsible to the plaintiff for the loan because of the inadequacy of theprice which Vila obtained for the 8 parcels of land owned by Rubiato and it failed to name alawful rate of interest. The 60% is usurious, as such the plaintiff shall only recover 6% interest PA rate on thesum of P800.



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Rono vs. Gomez83 Phil 890

Debtor: RonoCreditor: Gomez

Facts:Repayment of the loans given in Japanese currency during the lost war of the Pacific.Rono on October 5, 1944, received as a loan 4,000 in Japanese fiat money from Gomez

and agreed to pay said debt one year after date, in the currency then prevailing that time; this was done by way of promissory note. On October 15, 1945 Rono failed to comply with itsobligation, hence this cause of action.

Contention of the Plaintiff:- That the contract is contrary to usury law because he only received P100 and now

he is required to discharge P4000.

Contention of Respondent:- That Rono should pay his debt amounting to P4000

Issue: Whether or not the liability would remain in Japanese fiat not Philippine currency.

Ruling:Rono should pay Gomez the sum of only P100 with legal interest from the date of the

filing of the complaint plus cost. Because Peso during the time of contract is somewhat valuelessthan that of its equivalent during the expiration of the contact which is more in value, this fact

was then considered, and in order to give everyone its due and in fair Rono is to pay Gomez 100pesos which is equivalent of peso on October 5, 1944.

Eastern ShippingLines vs. CA234 SCRA 578

Facts:

Petitioner is a common carrier which brought the cargo of private respondent fromJapan to Manila. Due to bad weather, water was able to come in the cargo hold and damaged thegoods. Herein defendant brought the action to the RTC. CA ruled in favor of First National

Assurance (private respondent) and ordered ESL to pay damages with interest starting from the judicial demand. Petitioner contended that the interest is usurious and that it should commenceupon final order.


ESL:- Interest should start upon final order

FNA:- Interest should start from the judicial demand.

Issue: Whether or not the contention of the petitioner (ESL) is tenable.

Ruling:The interest due on the amount should commence from the date of judicial demand. The

legal interest to be paid is 6% on the amount due computed from the decision of the court a quo.



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Integrated Realty Corporation vs. PNB174 SCRA 295

Facts:Raul Santos was issued certificate of deposit totaling to P700, 000.00 by OBM. IRC

through Raul Santos applied a loan for P700, 000.00 with PNB . To secure the loan, he executeda Deed of Assignment of the two Time Deposit in favor of PNB. OBM after due dates did not pay.

Contention of the Plaintiff:- That the Trial Court erred in its judgment ordering them to pay for the amount

with additional penalty interest.

Contention of the Respondent:- The plaintiff should pay additional penalty interest.

Issues: Whether or not OBM is liable to pay the 6.5% interest

Ruling: While it is true that under Art 1956, no interest shall be due unless it has been expressly

stipulated in writing, this applies only to interest for the use of money. It does not comprehendinterest paid as damages.

Jardenil vs. Salas73 Phil 976

Facts:

A mortgage deed was executed between Jardenil and Salas whereby the latter agreed topay interest to the date of maturity in March 1934. Contention of the Plaintiff:

- Should be entitled for the payment of interest up to the date of full payment of theprincipal.

Contention of the Respondent:

- Should only be liable up to the date of the maturity of the PNB.

Issue: Whether or not Salas is bound to pay the stipulated interest only up to the date of

maturity as fixed in the promissory note, or up to the payment is affected?

Ruling:The contract is silent as to whether after the date, in the event of non-payment, the

debtor would continue to pay interest. No legal presumption as to such interest could beindulged for this would be imposing upon the debtor an obligation that the parties have notchosen to agree upon. As such, plaintiff is only entitled to the stipulated interest of 12% on theloan. Legal interest shall accrue since judicial demand had been made.

Cu Unjeng vs.Mabalacat Sugar Co.54 Phil 976

Surety- Siulong and Co.Mortgagor-PNB

Facts:



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Cu Unjieng instituted this cause of action to recover from Mabalacat Sugar Companyindebtedness, with interest and to foreclose a mortgage given by the debtor to secure the same.Collection of debt-168,000.00 plus interest

Contention of the Plaintiff:- Collection of the debt plus interest.


- The extension of time of payment had the effect of abrogating the stipulation of the

original contract with respect to the acceleration of the maturity.Issue:

What is the interest to be imposed?

Ruling:The provision merely requires the debtor to pay interest monthly at the end of each

month, such to be computed upon the capital of the loan not already paid. Compound interestmust be eliminated. It must always be in writing or when there is judicial demand.

GSIS vs. CA145 SCRA 311

Debtor- Spouses MedinaCreditor- GSIS Facts: Spouse Medina applied for a loan with the GSIS. GSIS approved said application with thefollowing conditions: that the rate of interest is 9% per annum compounded monthly; payable in10 years, at monthly amortization; and that any installment or amortization that remains dueand unpaid shall bear interest of 9% to 12% per month. Medinas executed 2 real estatemortgage as security in favor to GSIS.

That the Medinas defaulted in paying the monthly amortization on their loan, the GSIS

imposed 9% to 12% interest on all installment due and unpaid.Contention of the Plaintiff:

- The amended REM did not supersede the original document, therefore, all interestand stipulations should be imposed.

Contention of the Respondent:- The compound interest should not be imposed since it was not in writing in the

amended REM.

Issue: Whether or not the compounded interest as stipulated in the original mortgage contract

be enforced in the later mortgage.

Ruling:The amendment did not replace or supersede the stipulations in the original contract.

The original mortgage contract embodies the same terms and conditions as in the additionalloan. The amendment should also be subject to the same terms and conditions.

Eastern Assurance vs. CA322 SCRA 73



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Insurer: Vicente TanInsurance company: Eastern Assurance Company

Facts: Vicente Tan insured his building in Dumaguete City against fire with EASCO for P250,

000.00. In June 1982, the building was destroyed by fire. EASCO was then ordered to pay Tanfor damages. EASCO was about to pay Tan with 6% interest per annum as legal interest of thefailure to pay Tan. Tan on the other hand refused to accept said payment saying that the proper

legal interest must be 12% per annum.Note: RTC did not impose any interest to its decision. Contention of the Plaintiff:

- The applicable legal rate should be 6%per annum. Contention of the Respondent:

- The applicable rate should be 12% per annum. Ruling:

Petitioners contentions are without merit. The judgment of the court awarding sum ofmoney becomes final and executor. The legal interest, whether the case falls under breach ofcontract constituting sum of money,i.e. loan or forbearance, or loans constituting sum of money,should be 12%.

Delgado vs. Valgona44 Phil 739

Debtor-ValgonaCreditor- Delgado Facts: Alonso sold to Delgado 12 parcels agricultural land at Goa, in the province of CamarinesSur. Alonso obtained or bought said land from certain Stickney, in the amount of 15,000.00

pesos. In said contract of sale between Alonso and Delgado, the latter is to give payment to thelots in 2 semi annual installments with15% interest, which is more than what the law required 12% per annum, within 12 years and none compliance would make the creditor possess the lot inquestion.

Delagado then failed to comply with his obligation, but had already given 2,625 pesos inthe previous installments. Alonso was about to move the foreclosure of the mortgage, when by

way of Delgados lawyer he made known that the contract was usurious, hence this cause ofaction. On the other hand Alonso filed a cross-complaint contending that he is the aggrieved andthat he must be reimbursed the amount of 15,000.00 pesos for the 12 parcel of land conveyed byhim in favor of Delgado, that be deducted of the amount of 2,625 pesos.Interest: 15% per annum, Principal-P15, 000.00

Contention of the Plaintiff:- Recovery of the sum of P2, 625.00 paid upon by way of interest and P2, 500.00

attorneys fees.Contention of the Respondent:

- Special defense that the contract in question had been entered into by himinnocently and in total ignorance on his part of the existence of the Usury Law.Moved for the setting aside of the Mortgage and payment of P15,000.00.

Issue: Whether or not the stipulation is valid.



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Ruling:The mortgage is usurious because it is in excess of that allowed by law. Interest to be

imposed should be 6% per annum.

Bataan Seedling vs. Republic383 SCRA 590

Facts: Bataan Seedling Association Incorporated entered into a reforestation contract with theRepublic of the Philippines, represented by DENR. It undertaken a reforestation of a 50hectares open or detruded forest land in Liyang Pilar, Bataan with a period of 3years. WhenBSAI failed to comply with its obligations, respondent sent notice of cancellation of the contract.BSAI did not reply, respondent filed a complaint asking among others that the mobilization fondand advance payment be refunded with 12 % interest.

Community Based Reforestation Contract with DENR with the following claims:Principal- P56, 290.69; Interest Rate- 12%

Consideration- P975, 126.61-Reforestation-50 hectares in Pilar, Bataan for 3 years.

Contention of the Plaintiff:- The order to refund the amount of P56, 269.69 with interest at the rate of 12% per

annum representing the balance of the mobilization fund is palpable as beingcontrary to the facts.

Contention of the Respondent:- The rate should be at 6% per annum.

Issue: Whether or not the imposition of the 12 % interest is usurious or proper?

Ruling:The interest rate on the P56, 290.69 shall be at the 6% PA from the decision of the CA

and 12% in lieu of the 6% shall b imposed upon finality of this decision, until full paymentthereof.

Ligutan vs. CA376 SCRA 560

Debtor-Ligutan and LianaCreditor-Security Bank

Facts: Ligutan and de la Llama obtained a loan from Security bank and Trust Company.Ligutan and Llama executed a promissory note binding themselves jointly and severally to paythe sum borrowed with an interes of 15. 189% per annum upon maturity and to pay a penalty of5% every month on the outstanding principal and interest in case of default. In addition, theyagreed to pay 10% of the total amount due by way of attorneys fees of a suit were instituted toenforce payment. Despite demand, petitioners failed to pay. The filing of complaint wasinstituted by the bank, where the RTC rendered decision ordering petitioners to pay the sum of14,416 pesos of corresponding interest as agreed upon plus 2% service charge.

Contention of the Plaintiff:- The imposed interest is excessive. 15.189% PA interest and 3% per month penalty

rate are manifestly exorbitant, iniquitous and unconscionable.



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- The rates are valid as stipulated in the PN. Ruling:

Separate rates for interest and penalty are valid because they are distinct from each otherand are equally demandable due to an express stipulation. However, the interest rate is reducedto3% because there was partial payment.

RCBC vs. CA289 SCRA 292

Debtor: Goyu and Sons, Inc.Creditor: RCBC

Facts: Goyu and Sons Incorporated have fire claims against Malayan Insurance CompanyIncorporated in connection with the mortgage contracts entered into by and between RCBC andGoyu in consideration of the latters application for credit facilities and accommodation withRCBC in consideration of a loan from RCBCs counterclaim, ordering Goyu to pay its loanobligation with RCBC in the amount of 68, 785.069 pesos.

Surcharges and penalties are adjudged at 2% and 3% respectively per computation. Inexplicably, the CA without even laying down the factual or legal justification for itsruling modified the trial courts ruling and ordered Goyu to pay the principal amount. Contention of the parties:

RCBC:- claims that Goyu should pay its loan obligation as executed by them in favor of the

former.Goyu:

- should not pay for the interest because it is not in the contract.

Issue: Is the RCBC the rightful claimant of the insurance?

Ruling:The presence of indorsements documents give rise to a right which in this case is a claim

for insurance from the company. Goyu is still liable to pay its loan obligation with interest. Goyumust comply with the payment of its loan obligation with the agreed interest through RCBC had

waived collection of surcharges and penalties. Segovia vs. Dumatal

364 SCRA 159

Facts: Segovia Devt Corp and JLDRDC entered into 3 identical contracts to sell 3 condo unitsof which out of P6.05 million as purchase price, but only P4.4 million was paid. However, laterDuamtal failed to fulfill his obligation to Segonia leading to the rescission of the contract. Thecase was adjudicated by the HLURB until it reached the office of the President, where it wasdecided that

Dumatal should pay remaining outstanding balance of 3M plus additional 3% per monthfor each delayed payment plus 50% a contract price adjustment with 6% interest per annumfrom November 1990 until fully paid.




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Segovia- To pay for the remaining balance plus interest of 3% and 6% per annum as

damages. Dumatol

- 3% is grossly iniquitous. There was no basis for the imposition of the 6% perannum.

Ruling:

The 3% per month translates to 36% PA. The interest rate is reduced to 12% PA. The 6%as compensation for damage has no statutory justification because there was neither stipulationnor judicial demand to that effect.

First Metro Investment Corp. vs. Este Del Sol369 SCRA 99

Facts: Este Del Sol applied for a loan to the First Metro Investment, for an amount of 7M, for theconstruction of a resort and mountain reserve. Consequently, both parties executed a loanagreement where they stipulated that:

1) Interest on the loan was rigged at 16% P.A. based on the diminishing balance.2) Incase of default, an acceleration clause was among others provided and the

amount due was made subject to a 20% onetime penalty on the amount due andsuch amount shall bear interest at the highest rate permitted by law from thedate of default until full payment thereof plus liquidated damages at the rate of2% p.m. compounded quarterly on the unpaid balance and accrued interest.

3) Plus attorneys fee equivalently to 20% of the sum sought to be recovered whichin no case be less than 20,000 pesos if the service of a lawyer were hired.

Later, the petitioner also imposed to the respondent that in order for the loan to begranted, an underwriting and consultancy agreement should be made, obliging the respondentto pay the petitioner a supervising and consulting fee of 200thousand for 4 years. Thus, theagreement was perfected. Later, the respondent failed to fulfill his obligation. Hence, the filing

of the suit in the trial court.Contention of the Plaintiff:

- The instant collection suit against respondent to collect the alleged deficiency balance from the loan agreement including what is due to them from theUnderwriting and Consultancy Agreement.


- The underwriting and consultancy agreement executed simultaneously with and asintegral part of the loan agreement and which provided for the payment, were inreality subterfuges resorted to by FMIC to camouflage the usurious interest.

Issue: Was the underwriting and consultancy agreement a device to cloak the usurious

transaction made by the petitioner?

Ruling: Art. 1957: Contracts and stipulations, under any cloak device or whatsoever.

Such penalties, liquidated damages and attorneys fees are excessive, iniquitous andunconscionable and revolting to the conscience as they hardly allow the borrower any chances ofsurvival in case of default.



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Banco Filipino v. CA332 SCRA 241

Bailor:Banco FilipinoBailee: Arcilla et al.

Facts: Arcilla et al. obtained a loan with the Banco Filipino at a rate of 12 % per annum. The

loan provides an escalation clause empowering the bank to increase the interest rate as may beprovided by law. The loan is payable in 19 years. Later, Central Bank circular 494 was issuedincreasing the ceiling of interest on loans with maturity of more than 730 days by bank andother financial groups engaged in banking transactions to 17% pursuant to the circular, from12% interest it becaome 17%.

A suit was filed against the Banco Filipino for the annulment of the contract of loan; thetrial court rendered a decision in favor of the respondent finding the interest usurious.


Petitioners claim:- respondent is not entitled to refund.

Respondents claim:- they are entitled to the refund in as much as the escalation clause and is therefore

illegal.

Ruling:It may not although Circular Bank 494 has the force and effect of law, it is not a law and

is not the law contemplated by the parties which authorized the petitioner to unilaterally raisethe interest rate of the loan.

g. Special Cases

Soncuya vs. Azzaraga65 Phil 635

Debtor: SoncuyaCreditor: Attorney Azzaraga

Facts:In payment for attorneys fees, the defendant mortgaged his land to his lawyer. The

lawyer sold the credit to the plaintiff. No payment was made. Extension was made but withexpress condition that 12% interest shall be paid. Contention of the Plaintiff:

- Since there was nonpayment of the property in question, ownership should bepassed to him through the contract of assignment of debt and right to repurchase.


- The plaintiff cannot have ownership through the assignment of credit or pacto deretro because such was not stipulated, thus, does not have any right over theproperty.

Ruling:



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When the plaintiff agreed to extend the period of payment plus interest, the pacto deretro contract was converted into simple loan with or without guaranty, such interest may bedemanded.

Herrera vs. PetrophilGR No. 48349; 12/29/86

Lessor: HerreraLessee: Petrophil

Facts:Herrera and Petrophil entered into a lease agreement for 20 years. Petrophil made

advance payments for the first 8 years subtracting there from the discount of 12% PA.

Contention of the Plaintiff:- The deduction is not proper because it is in violation of the Usury Law. The interest

to be deducted should be reduced to P29, 000.00.

Contention of the Respondent:- The deduction was not usurious interest but a discount for paying in advance for 8

years.Issue: Whether or not there is a usurious transaction.s

Ruling:Discount is not unusual in a lease contract as long as it is not contrary to laws.No usury because there is no money given by the defendant to plaintiff nor did it allow

him to use its money already in his possession and there was neither loan nor forbearance, butonly a mere discount which the plaintiff allowed the defendant to deduct.

Elements of Usury 1) Loan express or implied;2) Understanding between the parties that the money shall be returned;3) That for such loan a greater rate or interest that is allowed by law shall be paid,

agreed to be paid as the case may be;4) Corrupt intent to take more then the legal rate for the use of money loaned.

Discount does not have to be paid.Forbearance subject to repayment and is therefore governed by the laws on usury law.

Equitable mortgage the deposit of title of deeds, by the owner of the estate with a person from whom her has borrowed money, with an accompanying agreement to execute a regularmortgage or by the mere deposit without even any verbal agreement respecting regular security.

Bonnevie vs. CA (Philippine Bank of Commerce-Resp)125 SCRA 122

Facts:Spouses Lozano mortgaged their property to secure a loan of P75, 000.00 from PBC.

They executed a deed of sale in favor of Bonnevie with assumption of mortgage for P100,000.00. PBC foreclosed the property and sold in public auction. Contention of the Plaintiff:

- The collection of interest on the loan up to July 12, 1968 extends the maturityhence the foreclosure was not proper.




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Relucio vs. Brillante187 SCRA 405

Facts:Both parties entered into Buy and Sell Contract over 2 residential lots. Relucio was

ordered to return to Brillante the excess payment of P650,000 plus 6% Per annum. Contention of the Plaintiff:

- Respondent was obliged to pay interest on the installment payments of the unpaid balance even if paid on these due dates per schedule of payments.


- That she had never incurred delay so the stipulated interest of 6% PA is null and void.

Ruling:

Petitioner cannot anymore charge 6% interest PA. The stipulation clearly specified thatthe 6% interest PA was included in the installment price. The installment price had an interestcomponent which compensated the vendor.

Ruiz vs. Canuba191 SCRA 865

Facts:Ruiz rents a house owned by Sanggalang amounting to P650.00. Ruiz and Sanggalang

agreed that the former will buy the house and lot and will continue to pay the rental until fullpayment.

Due to disagreement with the amount paid, the former demands return with 24%interest compounded annually.

Contention of the Plaintiff:- That he is entitled to the interest of 24% compounded annually.

Contention of the Respondent:- That he should not be held liable to pay for the said rate.

Ruling: Where the court judgment did not provide interest, there is no reason to add interest in

the judgment. Interest was not demanded by the Ruizes when the case was pending before thelower court, hence, there is nor reason to grant.

Tio Khe Cheo vs. CA202 SCRA 119

Facts:

Cheo imported 1000 kgs of fish meal. The goods were insured by EASCO. The goods were found to be damaged by the seawater rendering them useless. Contention of the Plaintiff:

- Since his claimed is based on an insurance contract, the Insurance Code shouldgovern the interest to be applied.




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B. DEPOSIT

1.1. GENERAL PROVISIONS2. Articles 1962 - 1967, 1978 and 1980

Article 1962 A deposit is constituted from the moment a person receives athing belonging to another, with the obligation of safely keeping it andof returning the same. If the safekeeping of the thing delivered is notthe principal purpose of the contract, there is no deposit but someother contract. (1758a)

COMMENT:

1. Purpose of Deposit: Safekeeping of the thing delivered.

2. Two instances where depositary can use the thing:

a. With the express permission of the depositor. b. When the preservation of the thing deposited requires its use, it must be used but

only for that purpose.

3. Kinds of Deposit:

a. Judicial (Sequestration) When an attachment or seizure of property in litigation isordered.

b. Extra-judicial:1. Voluntary made by the will of depositor.

2. Necessary a) made in compliance with a legal obligation

b) on the occasion of a calamity c) made by travellers in hotels or innsd) made by travellers with common carrier

4. Characteristics of the Contract of Deposit:

a. It is a real contract perfected by delivery. b. The principal purpose is the safekeeping of the thing delivered.c. The depositary cannot use the thing deposited except:

+ With the express permission of depositor+ When the preservation of the thing deposited requires its use.

d. Only movable thins can be the object of a deposit.e. It is a gratuitous contract, except when there is an agreement to the contrary

or unless the depositary is engaged in the business of storing goods.f. The contract is either unilateral or bilateral, according to whether it is

gratuitous or compensated.

5. Deposit and Commodatum Distinguished:



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a. Deposit may be gratuitous, while commodatum is essentially and alwaysgratuitous.

b. The principal purpose of deposit is for safekeeping, while the principal purpose ofcommodatum is for use.

Article 1963 An agreement to constitute a deposit is binding but the deposititself is not perfected until the delivery of the thing.(n)

+ This article is self-explanatory.

Article 1964 A deposit may be constituted judicially or extra-judicially .

COMMENT:

1. Distinctions Between Extra judicial and Judicial Deposits:

a. As to origin:Extra-judicial: the will of the partiesJudicial: the will of the court

b. As to Status:Extra-judicial: there is a contractJudicial: there is no contract

c. As to purpose:Extra-judicial: custody and safekeeping of the thing for the benefit of the depositorJudicial: to guarantee the right of the plaintiff to recover compensation in case of afavorable judgment

d. As to Cause:Extra-judicial: gratuitous, as a ruleJudicial: onerous

e. As to Subject Matter:Extra-judicial: always movable propertyJudicial: either movable or immovable property, but generally immovable

f. As to in whose behalf it is held:Extra-judicial: in behalf of the depositorJudicial: in behalf of the winner

Article 1965 A deposit is a gratuitous contract except when there is anagreement to the contrary or unless the depositary is engaged in thebusiness of storing goods. (1760a)




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Article 1966 Only movable things may be the object of a deposit. (1761)

COMMENT:

1. Why only movable things may be the object of deposit?

The object of a deposit is the safekeeping of a thing, for without such safekeepingof the thing it may be lost or it may disappear or be stolen. This will not happen in realproperty.

Article 1967 An extrajudicial deposit is either voluntary or necessary. (1762)

COMMENT:

1. Kinds of Extra-judicial Deposit:

a. Voluntary - as when there is mutual consent b. Necessary - when there is a deposit because of a calamity.

Article 1978 When the depositary has permission to use the thing deposited,the contract loses the concept of a deposit and becomes a loan orcommodatum, except where safekeeping is still the principal purposeof the contract.

The permission shall not be presumed, and its existence must beproved.


Article 1980 Fixed savings and current deposits of money in banks and similarinstitutions shall be governed by the provisions concerning simpleloan.

C ASE:BPI vs. IAC

164 SCRA 630



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Petitioner: BPIRespondents: IAC and Rizaldy Zshomack

What Happened: Zshornack and Commercial Bank and Trust Co. Of the Phils. (COMTRUST) were theoriginal parties to this case. BPI absorbed COMTRUST through a corporate merger andsubstituted as party to the case. Zshornack entrusted to COMTRUST the amount of 3,000 US

dollars for safekeeping. After sometime, Zshornack ask the bank to release his money back tohim. However, the bank claimed that they do not enter into a contract of deposit, and that the3,000 US dollars was sold and the peso proceeds were deposited in petitioners account. The

bank prayed it be totally absolved from any liability to Zshornack.

Contention of the Parties:

COMTRUST (substituted by BPI):+ Claims that they did not enter into a contract of deposit, and that the 3000 US

dollar was sold and the peso proceeds were deposited in petitioners account.

Zshornack:+ Claims that it is a deposit.

Supreme Court Ruling:The transaction between Zshornack and COMTRUST is of a deposit. Since, the

agreement stated that the 3000 US dollars given to the bank were for safekeeping. Article 1962states that a deposit is constituted the moment a person receives a thing belonging to another,

with the obligation of safely keeping it and for returning the same. The parties did not intend tosell the US dollars to the Central Bank otherwise, the contract of deposit never had been enteredinto.

But, since the mere safekeeping of the US dollars, without selling them to the CentralBank within one business day from receipt, is prohibited, the contract of deposit is void. Thus,

both parties are in pari delicto, they have no cause of action against each other.

1.2. VOLUNTARY DEPOSIT

a. IN GENERAL : Articles 1968 1971

Article 1968 A voluntary deposit is that wherein the delivery is made by thewill of the depositor. A deposit may also be made by two or morepersons each of whom believes himself entitled to the thing deposited

with a third person, who shall deliver it in a proper case to the one towhom it belongs. (1763)

COMMENT:

1. Depositor Need Not Be the Owner:

Generally, the depositor must be the owner. As a matter of fact, the law providesthat the depositary cannot demand that the depositor prove his ownership of the thingdeposited.



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Article 1969 A contact of deposit may be entered into orally or in writing. (n)

COMMENT:

Form of the Contract of Deposit

a. oral b. written

Article 1970 If a person having capacity to contract accepts deposit made byone who is incapacitated the former shall be subject to al theobligations of a depositary and may be compelled to return the thingby the guardian or administrator of the person who made the depositor by the latter himself if he could acquire capacity. (1964)

COMMENT:

1. Validity of the Contract entered into

+ The contract entered into under Art. 1970 is a voidable one.

2. Capacity of Depositary

+ The depositary himself must be sui juris capacitated to enter into binding

contracts. He is subject to all the obligations of a depositary. The law saysthat persons who are capable cannot allege the incapacity of those with whom they contracted. (Art. 1379, Civil Code)

Article 1971 If the deposit has been made by a capacitated person withanother who is not the depositor shall only have an action to recoverthe thing deposited while it is still in the possession of the depositaryor to compel the latter to pay him the amount by which he may haveenriched or benefited himself with the thing or its price. However if a

third person who acquired the thing in bad faith the depositor maybring an action against him for its recovery. (1765a )

COMMENT:

1. Rule id Depositary is IncapacitatedExample:

A deposited something with B, who is insane. B in turn disposed of it in favour ofC. Can A go against C?



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Article 1974 The depositary may change the way of the deposit if under thecircumstances he may reasonably presume that the depositor wouldconsent to the change if he knew of the facts of the situation.However, before the depositary may make such change, he shall notifythe depositor thereof and wait for his decision, unless delay wouldcause danger. (n)

COMMENT:

1. General Rule:+ Allowed to change without permission.

Exception: + Unless delay would cause danger.

2. Reason for the Law

+ This is in accordance with the rule that generally the depositary must take care ofthe thing with the diligence of a good father of a family.

Article 1975 The depositary holding certificates, bonds, securities orinstruments which earn interest shall be bound to collect the latterwhen it becomes due, and to take such steps as may be necessary inorder that the securities may preserve their value and the rightscorresponding to them according to law. The above provision shall not apply to contracts for the rent ofsafety deposit boxes. (n)


Article 1976 Unless there is a stipulation to the contrary, the depositary maycommingle grain or other articles of the same kind and quality, inwhich case the various depositors shall own or have a proportionateinterest in the mass. (n)




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Article 1977 The depositary cannot make use of the thing deposited withoutthe express permission of the depositor. Otherwise, he shall be liable for damages. However, when the preservation of the thing deposited requiresits use, it must be used but only for that purpose.

COMMENT:

1. Generally, depositary cannot use:

+ Generally the use of the thing is not allowed the depositary.

Article 1978 When the depositary has permission to use the thing deposited,the contract loses the concept of a deposit and becomes a loan orcommodatum, except where safekeeping is still the principal purposeof the contract.

The permission shall not be presumed, and its existence must beproved. (1768a)

COMMENT:

1. Presumption

+ The law creates the presumption in a deposit, the permission to use it notpresumed, except when such use needed for preservation. Therefore, a person whoalleges that permission or authority to use the thing deposited has been given, has

the burden the proving the allegation.

Article 1979 The depositary is liable for the loss of the thing through afortuitous event:

(1) If it is so stipulated;(2) If he uses the thing without the depositor's permission;(3) If he delays its return;(4) If he allows others to use it, even though he himself may

have been authorized to use the same. (n)

COMMENT:

1. The depositary is liable for the loss of the thing through a fortuitous event:

(1) If it is so stipulated ;(2) If he uses the thing without the depositors permission;(3) If he delays its return;(4) If he allows others to use it, even though he himself may have been authorized to

use the same.



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General Rule: Depositary is not liableException: SUDA

Article 1980 Fixed, savings, and current deposits of money in banks andsimilar institutions shall be governed by the provisions concerningsimple loan. (n)

COMMENT:

1. Bank Deposit

a. The relationship between the bank and the depositor is that of debtor and creditornot depositary and depositor.

b. Current and savings deposit are loans to a bank because it can use the same.

Article 1981 When the thing deposited is delivered closed and sealed, thedepositary must return it in the same condition, and he shall be liablefor damages should the seal or lock be broken through his fault.

Fault on the part of the depositary is presumed, unless there isproof to the contrary.

As regards the value of the thing deposited, the statement of thedepositor shall be accepted, when the forcible opening is imputable tothe depositary, should there be no proof to the contrary. However, thecourts may pass upon the credibility of the depositor with respect tothe value claimed by him. When the seal or lock is broken, with or without the depositarysfault, he shall keep the secret of the deposit. (1969a)

COMMENT:

The Depositary must keep the secret of the deposit.

When the thing deposited is delivered closed and sealed, the depositary mustreturn it in the same condition, and he shall be liable for damages should the seal or lock

be broken through his fault. When the seal or lock is broken, with or without the

depositarys fault, he shall keep the secret of the deposit. (Art. 1981, pars. 1 and 4) If theseal or lock is broken through the depositarys fault, the presumption is that the fault ison the part of the depositary, unless there is proof to the contrary. (Art. 1981, par. 2)

As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the depositary, should there be noproof to the contrary. However, the courts may pass upon the credibility of the depositor

with respect to the value claimed by him. (Art. 1981, par. 3)



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Article 1982 When it becomes necessary to open a locked box or receptacle,the depositary is presumed authorized to do so, if the key has beendelivered to him; or when the instructions of the depositor as regardsthe deposit cannot be executed without opening the box or receptacle.

COMMENT:

Necessity of Opening Locked Box.

+ See comments under the preceding Article.

Article 1983 The thing deposited shall be returned with all its products,accessories and accessions.

Should the deposit consists of money, the provisions relative toagents in article 1896 shall be applied to the depositary. (1770)


Article 1984 The depositary cannot demand that the depositor prove hisownership of the thing deposited.

Nevertheless, should he discover that the thing has been stolenand who its true owner is, he must advise the latter of the deposit.

If the owner, in spite of such information, does not claim itwithin the period of one month the depositary shall be relieved of allresponsibility by returning the thing deposited to the depositor.

If the depositary has reasonable grounds to believe that thething has not been lawfully acquired by the depositor, the former mayreturn the same. (1771a)




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Article 1985 When there are two or more depositors, if they are not solidary,and the thing admits of division, each one cannot demand more thanhis share.

When there is solidarity or the thing does not admit of division,the provisions of articles 1212 and 1214 shall govern. However, ifthere is stipulation that the thing should be returned to one of thedepositors, the depositary shall return it only to the person designated.(1772a)

COMMENT:

Two or more Depositors

a. Example of Paragraph 1:

If A and B deposit 1000 sacks of rice, A can demand 500 sacks.

b. If A and B deposited a car, the depositary can return to either, in the absence of acontrary stipulations. (see Arts. 1212 and 1214, Civil Code)

+ Art. 1212. Each one of the solidary creditors may do whatever may beuseful to the others, but not anything which may be prejudicial to thelatter.

+ Art. 1214. The debtor may pay anyone of the creditors; but if anydemand, judicial or extrajudicial, has been made by one of them, paymentshould be made to him.

Article1986 If the depositor should lose his capacity to contract after havingbeen made the deposit, the thing cannot be returned except to thepersons who may have the administration of his property and rights.(1773)

COMMENT:

Rule of Depositor Becomes Insane

+ If the depositor returns to a depositor who is NOW insane, the depositary isdischarged from his obligation only if the insane depositor has kept the thingdelivered or insofar as delivery has been beneficial to such insane depositor (Art.1241, Civil Code).



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Article1987 If at the time the deposit was made a place was designated forthe return of the thing, the depositary must take the thing deposited tosuch place; but the expenses for the transportation shall be borne bythe depositor.

If no place has been designated for the return, it shall be madewhere the thing deposited may be, even if it should not be the sameplace where the deposit was made, provided that there was no maliceon the part of the depositary. (1774)

+ Self-explanatory

Article 1988 The thing deposited must be returned to the depositor upondemand, even though a specified period or time for such return may

have been fixed. This provision shall not apply when the thing is judicially

attached while in the depositarys possession, or should he have beennotified of the opposition of a third person to the return or the removalof the thing deposited. In these cases the depositary must immediatelyinform the depositor of the attachment or opposition.

COMMENT:

1. When deposit must be returned

+ As a rule, the thing deposited should be returned at the will of thedepositor. This is true whether a period has been stipulated or not.

2. Exceptions to the General Rule

a. When the thing is judicially attached while in the depositarys possession. Reason: The property will be subject to judicial orders.

b. Should the depositary have been notified of the opposition of a third person to thereturn or the removal of the thing deposited. Reason: The oppositor may claim to bethe owner.

Article 1989 Unless the deposit is for a valuable consideration, the depositarywho may have justifiable reasons for not keeping the thing depositedmay, even before the time designated, return it to the depositor; and ifthe latter should refuse to receive it, the depositary may secure itsconsignation from the court. (1776a)

COMMENT:



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Consignation is the act of depositing the things due at the disposal of judicialauthority to relieve liability.

Article 1990 If the depositary by force majeure or government order loses thething and receives money or another thing in its place, he shall deliverthe sum or other thing to the depositor. (1777a)

COMMENT:

If not delivered+ Liable as if it was lost not to a fortuitous event. And be obliged to pay charges and

the amount of the thing deposited.

Article 1991 The depositors heir who in good faith may have sold the thing whichhe did not know was deposited, shall only be bound to return the price hemay have received or to assign his right of action against the buyer in casethe price has not been paid him. (1778)

C ASES:Palacio vs. Sudario

7 Phil 275

Plaintiff: Aniceta PalacioDefendant: Dionisio Sudario

Facts:Palacio made an agreement with Sudario., for Sudario to pasture the 81 cattles owned by

Palacio. It was stipulated in their agreement that Palacio would pay Sudario .50 cents for everycalf born during the existence of their agreement and that half of which will be awarded todefendant. Upon demand, Sudario only returned 48 of the cattle, leading to Palacios filing of asuit against Sudario for the recovery of the other 33.Contention of the Parties:

Sudario+ claimed that he is not liable for the loss of the unreturned cattle because they were

either drowned in a flood or died due to disease.

Palacio:+ claimed that Sudario is liable.

Ruling:The court did not specifically identify what is the nature of the contract of whether is a

contract of deposit or a contract according to local custom of pasturing, however, they statedthat either way, their obligation remains the same.

Sudario being the depositary has obligation to safekeep the thing deposited and returnthe same to depositor. While the thing deposited is under his possession, he is required toexercise diligence of that of a good father. And in other cases where loss or destruction of the



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thing deposited happened, the depositary is presumed to be at fault and he has the burden toprove otherwise.

In the case at bar, the burden of prooflies on Sudario to prove that the loss of the cattle is without his fault or through fortuitous event. The court ruled that Sudario failed to overcome thepresumption and therefore, liable for the loss of the cattle.

RC Bishop of Jaro (RCBJ) vs. Dela Pena

26 Phil 144

Plaintiff: RC Bishop of JaroDefendant : Father Pe ! a represented by his administrator Gregorio dela Pe ! a

Facts:

RCBJ is a trustee of a charitable bequest made for the construction of a leper hospital to be constructed in Jaro. RCBJ authorized Fr. Agustin dela Pena as representative of the former toreceive the amount of P6,000 intended for the project. Later, Father Pena received the amount,

but instead of depositing the same in an independent bank account, he deposited the amountinto his personal bank account in Hong Kong and Shanghai Bank of Ilo-ilo. During the war,

Father Pena was detained by US military official. His bank account from which he deposited theamount was also confiscated alleging that the funds in the said bank will be used for insurgencypurposes. A complaint was filed for the recovery of ! 6,000. Father Pena died at that time andrepresented by the administrator of his estate Gregorio dela Pena.

Contention of the Parties:

RCBJ:+ claimed that Father Pe ! a is liable for the amount as trust funds which was not

included as a part of the funds deposited and which were removed and confiscated by the military authorities of the US.

Pena+ claimed that Father Pe ! a is not liable.

Ruling:

A careful examination of the case leads us to the conclusion that said trust funds were apart of the funds deposited and which were removed and confiscated by the military authoritiesof the US. In this jurisdiction, Father dela Penas liability is determined by those portions of theCivil Code which relates to obligations (Book 4, Title 1). The NCC provides, following theprinciples of the Roman Law: No one shall be liable for events which could not be foreseen, or

which having been foreseen were inevitable, with exception of the cases expressly mentioned inthe law or those in which the obligation so declares.

By placing the money in the bank and mixing it with his personal funds, dela Pena did

not thereby assume an obligation different from that under which he would have lain of suchdeposit had not been made, nor did he thereby make himself liable to repay the money at allhazards.

Father dela Pena was not liable for its loss.

Sociedad Dalisay vs. De Los Reyes55 Phil 542

Depositary: Dalisay Depositor: De Los Reyes



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Facts:

La Sociedad Dalisay is an industrial partnership located in Sta. Rosa Laguna. Prior toMay 20,1923, it received in its warehouse certain palay belonging to several persons. Early onthat morning of May 20, 1923, a fire broke in the said warehouse which at that time containedthousands of cavans of palay, the exact number being disputed and 568 cavans outside. Only1,052 cavans of palay plus 568 cavans outside were saved.

Contention of the Parties: Dalisa:

+ claims that the palay was burned unintentionally and without their fault, thus theymust not be held liable for the damages.

De Los Reyes:+ claims that Dalisay Company has not alleged that the palay burned was destroyed

without negligence on its part, thus Dalisay is liable for damages.

Ruling:

Dalisay is not liable in returning any quantity of the palay burned, except those cavans ofpalays saved. It was proved that the fire was neither intentional nor caused by the fault of thedepositary, who as a matter of fact had even attempted to save the goods.

Lavadia vs. Mendoza72 Phil 196

Depositor: LavadiaDepositary

Documents

CREDIT TRANSACTIONS.pdf